It is an established rule that the auditors are to play a vigilant and objective role in ensuring that the shareholders' interests are well protected and that the management of the company have acted within reason.

The outside, independent auditor is engaged to render an opinion on whether a company's financial statements are presented fairly, in all material respects, in accordance with financial reporting framework. The audit provides users such as lenders and investors with an enhanced degree of confidence in the financial statements. An audit conducted in accordance with GAASand relevant ethical requirements enables the auditor to form that opinion.

To form the opinion, the auditor gathers appropriate and sufficient evidence and observes, tests, compares and confirms until gaining reasonable assurance. The auditor then forms an opinion of whether the financial statements are free of material misstatement, whether due to fraud or error.

Management's responsibilities in an audit

Management's responsibility is the underlying foundation on which audits are conducted. Simply put, without management having responsibility for the financial statements, the demarcation line that determines the auditor's independence and objectivity regarding the client and the audit engagement would not be as clear.

It is important for a company's management to understand exactly what an audit is - and what an audit does and does not do. The auditor's responsibility is to express an independent, objective opinion on the financial statements of a company. This opinion is given in accordance with auditing standards that require the auditors to plan certain procedures and report on the results of the audit, while considering the representations, assertions and responsibility of management for the financial statements.

Due to the importance and increasing responsibilities placed on auditors, the recommendations contained in this Consultative Document covers issues pertaining to the rights and duties of the auditors, the appointment, removal, and resignation etc. Some examples of issues discussed in this Consultative Document are on the mandatory audit rotation and whether there is a need to codify the current self-regulatory approach on mandatory audit. In addition, the Consultative Document also touches on the steps to be taken by the auditor to effect his resignation and also the establishment of an independent Auditing Oversight Body.

Now that you know what auditors are and what they do, let's talk about the audit process in accounting. This type of audit is called a financial audit. A financial audit is an audit that examines the financial records of a company. There are six basic steps that must be completed when performing a financial audit.

The first thing that an auditor would do is to look at the way that financial information is given to the accounting department from other departments. Auditors look for timeliness in getting documents, such as receipts, invoices, bank statements, and payment records, from each individual department to the accounting department. The time line of this activity can and will affect when revenue and expenses are recognized.

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